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Test Your Mutual Fund IQ

No country in the world has more assets tied up in mutual funds and exchange-traded funds than the U.S. – nearly $19 trillion, according to the most recent tally from the Investment Company Institute. And 44% of all U.S. households own at least one mutual fund. But that doesn’t mean investors understand everything they should about these securities.

Put your knowledge to the test and find out how much you know – or don’t know – about mutual funds.

Quiz | Test Your Mutual Fund IQ

Question 1 of 11

How much do you typically need to invest in a mutual fund?

Quiz | Test Your Mutual Fund IQ

Question 1 of 11

How much do you typically need to invest in a mutual fund?

Generally speaking, the minimum investment for individual investors ranges from $100 to $5,000, with most funds charging between $1,000 and $2,500. The minimum applies only to the first-time purchase of shares. Some funds require $10,000 and up; others have no minimum at all. Any additional money yo... Read more ˅

Generally speaking, the minimum investment for individual investors ranges from $100 to $5,000, with most funds charging between $1,000 and $2,500. The minimum applies only to the first-time purchase of shares. Some funds require $10,000 and up; others have no minimum at all. Any additional money you wish to invest later can be in smaller amounts, typically between $50 and $250. But some funds, including the investor share class of many Vanguard funds, allow additional investments of as low as $1. Less ˄

Quiz | Test Your Mutual Fund IQ

Question 2 of 11

When did the first index fund open?

Quiz | Test Your Mutual Fund IQ

Question 2 of 11

When did the first index fund open?

Vanguard 500 Index (VFINX) was one of a kind when it launched in August 1976 for individual investors. It is now one of the biggest funds in the country, with $391 billion in assets. As of January 2018, only one other fund ... Read more ˅

Vanguard 500 Index (VFINX) was one of a kind when it launched in August 1976 for individual investors. It is now one of the biggest funds in the country, with $391 billion in assets. As of January 2018, only one other fund surpassed it in size: the Johnny-come-lately Vanguard Total Stock Market Index (VTSMX), which opened in 1992. Less ˄

Quiz | Test Your Mutual Fund IQ

Question 3 of 11

What is the best way to learn about a mutual fund?

Quiz | Test Your Mutual Fund IQ

Question 3 of 11

What is the best way to learn about a mutual fund?

Kiplinger's fund rankings give you a good and easy-to-read overview of hundreds of mutual funds. But for a deep dive into any one fund, going straight to the source is a good idea. The task of reading a fund’s prospectus... Read more ˅

Kiplinger's fund rankings give you a good and easy-to-read overview of hundreds of mutual funds. But for a deep dive into any one fund, going straight to the source is a good idea. The task of reading a fund’s prospectus sounds onerous, but it doesn’t have to take long. Focus on the fund’s objective (typically one-sentence long), its investment philosophy and process (a few paragraphs) and the fund’s fees (a table). Then flip to the section that gives background info on the fund’s manager. You want to make sure he or she has been with the fund for at least three years. Voila, you’re done. Meanwhile, keep on top of our favorite no-load funds, the Kiplinger 25. Less ˄

Quiz | Test Your Mutual Fund IQ

Question 4 of 11

Mutual funds charge you a percentage of the assets you have invested in the fund for such expenses as portfolio management, and administrative, advertising and other operational expenses. What is the typical expense ratio of a diversified U.S. stock fund, including both index and actively managed funds?

Quiz | Test Your Mutual Fund IQ

Question 4 of 11

Mutual funds charge you a percentage of the assets you have invested in the fund for such expenses as portfolio management, and administrative, advertising and other operational expenses. What is the typical expense ratio of a diversified U.S. stock fund, including both index and actively managed funds?

Mutual fund fees have been steadily dropping for the past decade, thanks in part to the booming popularity of index funds, which cost less. On their own, index funds that invest in U.S. stocks – some 570 portfolios – charge an average 0.62%. Actively managed U.S. stock funds, which far outnumber... Read more ˅

Mutual fund fees have been steadily dropping for the past decade, thanks in part to the booming popularity of index funds, which cost less. On their own, index funds that invest in U.S. stocks – some 570 portfolios – charge an average 0.62%. Actively managed U.S. stock funds, which far outnumber their index-based brethren at roughly 6,950, charge an average 1.16%. Less ˄

Quiz | Test Your Mutual Fund IQ

Question 5 of 11

What is a 12b-1 fee?

Quiz | Test Your Mutual Fund IQ

Question 5 of 11

What is a 12b-1 fee?

Many funds charge a 12b-1 fee, which is listed as a percentage of assets and is included in the tabulation of the fund’s expense ratio. If a fund charges no sales fee but levies a 12b-1 fee that is greater than 0.25% of assets, by law it cannot call itself a no-load fund.

Quiz | Test Your Mutual Fund IQ

Question 6 of 11

All mutual funds levy sales charges at the time of purchase.

Quiz | Test Your Mutual Fund IQ

Question 6 of 11

All mutual funds levy sales charges at the time of purchase.

Many funds, including all of the ones in the Kiplinger 25, don’t charge sales fees at all. They’re called no-load funds. But other funds levy a load or sales charge of as much as 5.75% when you purchase shares. Others may charge you when you... Read more ˅

Many funds, including all of the ones in the Kiplinger 25, don’t charge sales fees at all. They’re called no-load funds. But other funds levy a load or sales charge of as much as 5.75% when you purchase shares. Others may charge you when you sell shares (called a deferred or back-end load). Funds that are either load or no-load may levy a redemption fee of between 0.20% and 2.0% if you buy shares and then sell them before a certain amount of time has passed. Redemption fees are typically used to discourage short-term trading. Less ˄

Quiz | Test Your Mutual Fund IQ

Question 7 of 11

Which costs matter most when you evaluate a mutual fund?

Quiz | Test Your Mutual Fund IQ

Question 7 of 11

Which costs matter most when you evaluate a mutual fund?

While some fund charges may seem small, especially on a percentage of assets basis, fees have a way of eating away at your nest egg. Consider this example: Imagine you have $100,000 invested. If you earn 6% a year for the next 25 years in a fund where expenses come in at 0.5%, you’ll end up with n... Read more ˅

While some fund charges may seem small, especially on a percentage of assets basis, fees have a way of eating away at your nest egg. Consider this example: Imagine you have $100,000 invested. If you earn 6% a year for the next 25 years in a fund where expenses come in at 0.5%, you’ll end up with nearly $380,000. Paying an upfront sales fee of 5.75% reduces your total to less than $360,000. Even without the sales charge, suppose that same investment costs you 2% in total expenses (including any 12b-1 fee) a year. After 25 years, you’ll have only $260,000. Bottom line: Fees – all of them – matter. Less ˄

Quiz | Test Your Mutual Fund IQ

Question 8 of 11

The term NAV stands for...

Quiz | Test Your Mutual Fund IQ

Question 8 of 11

The term NAV stands for...

Every mutual fund has a net asset value. It is basically the fund’s share price. Much like the calculation of a stock’s share price, a fund’s NAV is determined by taking the total value of the securities in the portfolio (less any liabilities) and dividing it by the number of the fund’s outs... Read more ˅

Every mutual fund has a net asset value. It is basically the fund’s share price. Much like the calculation of a stock’s share price, a fund’s NAV is determined by taking the total value of the securities in the portfolio (less any liabilities) and dividing it by the number of the fund’s outstanding shares. Less ˄

Quiz | Test Your Mutual Fund IQ

Question 9 of 11

When you buy or sell shares in a mutual fund, the trade is executed...

Quiz | Test Your Mutual Fund IQ

Question 9 of 11

When you buy or sell shares in a mutual fund, the trade is executed...

Mutual fund trades are executed only once a day, as opposed to stock and exchange-traded fund trades, which are completed throughout the day. The reason: When you place a trade to buy or sell shares in a mutual fund, it is executed using the fund’s next available share price, or net asset value. A... Read more ˅

Mutual fund trades are executed only once a day, as opposed to stock and exchange-traded fund trades, which are completed throughout the day. The reason: When you place a trade to buy or sell shares in a mutual fund, it is executed using the fund’s next available share price, or net asset value. And a fund’s NAV is calculated only once a day, after the market closes. By the next business day, most fund transactions are settled, meaning if you sold shares, the cash would be available in your account by then. By contrast, stock trades take three days to settle. Less ˄

Quiz | Test Your Mutual Fund IQ

Question 10 of 11

The most important qualification to consider when assessing an index mutual fund or exchange-traded fund is...

Quiz | Test Your Mutual Fund IQ

Question 10 of 11

The most important qualification to consider when assessing an index mutual fund or exchange-traded fund is...

A reliable fund firm, low fees and a fund that matches a broad, well-known index, such as the S&P 500 or the Dow Jones Industrial Average, were once the keys to finding a good index fund. But now, the growing number of more complex index funds make it important to understand the benchmark behind a f... Read more ˅

A reliable fund firm, low fees and a fund that matches a broad, well-known index, such as the S&P 500 or the Dow Jones Industrial Average, were once the keys to finding a good index fund. But now, the growing number of more complex index funds make it important to understand the benchmark behind a fund and how stocks are chosen for it. Fidelity Low Volatility Factor ETF (FDLO), for instance, tracks a proprietary index of large- and midsize-company U.S. stocks that takes into account the five-year variability of a company’s earnings and the rockiness of its share price compared with the broad market, among other factors. Less ˄

Quiz | Test Your Mutual Fund IQ

Question 11 of 11

Index funds dominated the list of the best-performing U.S. stock funds over the past 10 years.

Quiz | Test Your Mutual Fund IQ

Question 11 of 11

Index funds dominated the list of the best-performing U.S. stock funds over the past 10 years.

Actively managed funds dominate the list of the top 50 best-performing mutual funds and exchange-traded funds over the past 10 years (through Jan. 26). In fact, only six index funds rank among the top 50. But the No. 1 spot does go to an index-based ETF: First Trust NYSE Arca Biotechnology Index Fun... Read more ˅

Actively managed funds dominate the list of the top 50 best-performing mutual funds and exchange-traded funds over the past 10 years (through Jan. 26). In fact, only six index funds rank among the top 50. But the No. 1 spot does go to an index-based ETF: First Trust NYSE Arca Biotechnology Index Fund (FBT), which returned 20.4% annualized over the past 10 years. The top diversified U.S. stock fund, ranking fourth overall, was Primecap Odyssey Aggressive Growth (POAGX), with a 17.5% annualized 10-year return. The fund is closed to new investors. Less ˄

Quiz | Test Your Mutual Fund IQ

Results

answer_num=2,4,2,3,3,2,4,1,3,4,2|answer_text="B. You can invest as little or as much as you’d like – but most funds set a minimum requirement for your initial investment.","D. In 1976, as stocks recovered from the brutal bear market of 1973-74.","B. From the fund’s prospectus.","C. 1.12%","C. A charge to cover advertising, marketing and other expenses, including commissions paid to brokers.","B. False","D. All of the above","A. Net asset value. An expression of the per-share value of a fund’s portfolio.","C. After the market closes.","D. All of the above.","B. False"|total_questions=11|url=/quiz/investing/T041-S003-test-your-mutual-fund-iq/index.html|total_pages=24|page_id=18210|evaltext_num=0|kipad_id=MutualFundsQuizzes